Bills Digest No. 41 2002-03

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

Passage History

Commencement:Schedule 1 commences
immediately after the commencement of the Egg Industry Service
Provision Act 2002. The remaining provisions commence on Royal
Assent.

Purpose

To facilitate the establishment of the
Australian Egg Corporation Limited (AECL)

Background

This Bill is related to the Egg Industry Service
Provision Bill 2002. It creates a flexible restructuring
environment for the transfer of egg promotion and research and
development functions from the Rural Industries Research and
Development Corporation (RIRDC) to the proposed Australian Egg
Corporation Limited (AECL).

Transitional Functions

The Bill requires RIRDC to facilitate the
transfer to AECL and assist relevant entities in meeting associated
expenses (proposed section7).
The Minister may give written directions which RIRDC must follow
(proposed subsection7(3)). The
directions must be tabled in Parliament within 15 sitting days
(proposed subsection7(4)).

The Minister may, by written declaration,
transfer assets and liabilities of RIRDC. S/he may also substitute
the inaugural industry services body (the 'successor body') in
respect of related instruments and succession. Each declaration has
immediate effect according to its terms. It has effect irrespective
of any particular formal transfer, conveyance or assignment
(proposed sections 10 and 11).
There are no publication requirements. In the horticulture, wool
and pig industries, declarations must be published in the
Gazette.(1)

Provision is made for certificates which will
allow declarations in relation to assets to have effect under State
and Territory law. A certificate signed by the Minister and lodged
with a State or Territory official may have the same effect as an
instrument prepared and lodged in accordance with State or
Territory law (proposed section14).

Similarly, there is a blanket exemption from
stamp duty or other tax payable under State or Territory laws for
'exempt matters' (proposed sections 12 and
13). These include:

the transfer or sale of an asset to the successor body, or

the transfer of a liability to the successor body.

These 'exempt matters' are also covered by
certificates (proposed subsection12(2)).

Also, the certificates are evidence 'in all
courts and for all purposes' of the matters stated
(proposed subsection12(3)). This
presumptive rule would seem to apply to declarations
relating to the transfer of assets or liabilities, but this is not
clear. In the pig and wool industries, the certificates, whether
they relate to exemptions or transfers, have effect according to
their terms and are prima facie evidence.(2)

In this Bill, although it applies 'for all
purposes', the presumptive rule only applies to certificates that
identify a transfer or other matter as an exempt matter, not to
certificates that state that an asset has become vested in a
successor body.

Exemptions from GST

The Bill sets up a mechanism to protect the
successor body from GST liability (proposed
section13). The transfer of assets to
the successor body is a 'taxable supply' for the purposes of the
GST law. The entry by the successor body into obligations under the
funding contract is also a 'taxable supply'. Thus, the successor
body would pay GST to the Commonwealth (for the transfer)
and the Commonwealth would pay GST to the successor body (for
the act of entering into obligations under the contract) and
each would remit the GST to the Australian Tax Office. But, because
each body is involved in some form of 'business' activity, each is
entitled to an input tax credit which it can use to offset its
GST.

The problem is that the value of the assets will
far exceed the value of the obligations under the funding contract.
Thus, the input tax credit available to the successor body in
respect of the contract is far less than the GST liability it has
in relation to the transfer. The transfer of assets is therefore
deemed by the Bill to be consideration paid by the Commonwealth for
the successor body's entry into the funding contract
(proposed section13).
Effectively, the Bill ties the value of the assets to the value of
the obligations. Thus, the successor body is entitled to receive an
input tax credit corresponding to the full GST liability in
relation to the transfer. The Commonwealth has an equivalent
entitlement.

A similar provision was included in one of the
Horticulture Acts.(3) It was inserted into the Bill by
an amendment during consideration in detail. Its purpose was to
'ensure that the new company is able to receive an input tax credit
to meet its GST liabilities when the assets of the existing
statutory corporation are transferred to it'. Ultimately the
amendment would ensure that the new corporation was not
'disadvantaged by the assets transfer'.(4)

Horticulture Marketing and Research and Development
Services (Repeals and Consequential Provisions) Act 2000,
section 19A

Warren Truss, Horticulture Marketing and Research and
Development Services (Repeals and Consequential Provisions) Bill
2000, consideration in detail, House of Representatives,
Debates, 1 November 2000, p. 21943.

Nathan Hancock
25 September 2002
Bills Digest Service
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